The Real IRS Playbook: What To Do Before, During, and After an Audit

Congratulations, You've Hit the Audit Lottery. Now What?

Almost everyone gets a little nervous at the word audit, even people who've done everything right. Add in a growing wave of phone, text, and email scams pretending to be the IRS, and it's no surprise the fear is often bigger than the reality.

In this episode, Andrew Rafal sits down with Jason Silver, a tax attorney and former IRS trial attorney, to walk through what's real, what's a scam, and what business owners specifically need to know if they ever get that letter.

Meet Jason Silver: From IRS Trial Attorney to Taxpayer's Advocate

Jason spent about four years as a IRS counsel attorney in Los Angeles, representing the IRS in U.S. Tax Court and working criminal tax cases, before moving to the client side. He's now been practicing law for 31 years, the last 25 as a partner at his own firm, Silver Law, PLC, where several attorneys, including Jason, came directly from the IRS.

That background matters here. As Jason puts it, understanding how the IRS actually operates internally is knowledge you mostly can't get anywhere else.

How the IRS Really Contacts You, and How the Scams Try To

A real audit almost always starts with a letter sent to the address on your last filed tax return. That letter tells you which tax year is under review, and it may include or be followed by an Information Document Request, or IDR, asking for specific records.

If you already have a power of attorney on file with the IRS, a copy of that letter typically goes to your representative as well. In rare cases, if a revenue agent already knows your representative personally, they might call ahead, but that's the exception, not the rule.

Responding to a Real IRS Letter: What Jason Shared

Jason describes his typical guidance to clients in this situation: begin by identifying which year is under review and whether an Information Document Request is attached, then reach out to a return preparer or tax attorney, who may be able to represent you or point toward the right specialist depending on the issue.

Jason notes a common misstep he sees, one he estimates happens roughly 90% of the time, taxpayers contacting the IRS directly themselves. In his experience, that often means answering questions without fully understanding how those answers may be used later in the process.

It's also worth knowing that most letters aren't a full audit at all. Sometimes it's simply a matching notice, for example, a 1099 that wasn't reported on your return. Those are often a quick fix through your CPA rather than something to be alarmed about.

Business Owners Face a Different Kind of Audit

Jason points to one issue he sees constantly with S corporation owners: not taking a reasonable salary. His general rule of thumb is to pay yourself what you'd have to pay someone else to do your job. Paying yourself little or nothing, while taking distributions instead, is one of the fastest ways to draw attention, since it affects the Social Security and Medicare taxes the IRS expects to see paid.

Every audit looks closely at income, including bank statements and IRS wage and income transcripts. Worker classification, 1099 versus W-2, comes up often too. Jason describes the kind of documentation he typically looks for when a business treats someone as an independent contractor: a signed W-9, a written independent contractor agreement, and day-to-day practices consistent with that classification, no set schedule, no company-provided training, and the ability for that worker to take on other clients.

Documentation Is Everything

One theme runs through nearly every part of this conversation: Jason's emphasis on substantiating everything, and keeping business and personal finances in separate accounts and cards. Travel, meals, and vehicle expenses carry a heightened documentation standard under the tax code, so it helps to record who was there, what the business purpose was, and where the money actually went, not just that a receipt exists.

Two areas worth flagging for anyone with older or more complex holdings: digital assets and old stock with an unclear cost basis. Since 2025, platforms like Coinbase have issued 1099-DA forms for digital asset transactions, and the IRS is paying close attention to crypto activity generally. Every return now asks directly whether you hold digital assets.

For older stock, especially shares received as a gift decades ago, Jason notes there's often no way to get a precise cost basis if the original records are long gone. His guidance: do your best-effort calculation, document how you arrived at it, and know that this is genuinely a best-effort exercise rather than an exact science.

Jason also describes a step he shares with clients before filing: pulling wage and income transcripts through the IRS's e-services portal, to see what's already been reported under your name before the return is filed, rather than after.

One Mistake Jason Sees Constantly: Amending a Return Too Fast

Jason flags a common instinct he sees work against people: amending a return the moment a mistake turns up. As he explains it, an amended return reopens the entire filing, so if other issues haven't been caught yet, it can lead to filing a second incorrect return. He generally addresses specific issues directly with the IRS rather than reflexively refiling.

Jason also flags a distinction most people don't think about: a CPA or return preparer generally doesn't hold privilege the way an attorney does, and could be required to testify about what a client has shared with them, something he says matters most in situations with potential criminal exposure.

Disclosure: The content on this page reports general information and perspectives shared by a guest during this podcast episode and is for informational and educational purposes only. Bayntree Wealth Advisors and its representatives do not provide legal or tax advice. Jason Silver is an independent tax attorney and is not affiliated with or endorsed by Bayntree Wealth Advisors; his contact information is shared for the listener's convenience only. Nothing on this page should be construed as legal or tax guidance specific to your situation. Please consult a qualified attorney and/or tax professional before making any decisions about your specific situation.